Chapter_13

Chapter_13 - Basic Accounting Documents Accounting System...

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1 Basic Accounting Documents Accounting System Purpose An accurate picture of firm’s current profitability An estimate of firm’s current and future financial position Input to firm’s management information system An accurate record of past financial performance Accounting & Agribusiness Manager Agribusiness managers must understand Balance sheet and profit and loss statement Evaluate financial business performance
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2 Accounting & Agribusiness Manager The balance sheet and the profit and loss statement are starting points of most financial analysis FINANCIAL MANAGEMENT Efficient use and control of ALL funds in/out of business and capital assets. (i.e., all dollar aspects of the firm) Financial Objectives Although there may be many objectives of the firm, there are at least three financial objectives for the firm: Profits Liquidity Solvency We have already defined profits as: Total revenue minus total cost. Profits--In business and economics, we assume that firms are profit motivated. Profit is the margin between total business receipts and total business expenses.
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3 Financial Objectives Continued Liquidity -- refers to the ability of the business to meet its cash commitments in a timely fashion. Solvency -- A business is solvent if total assets exceed total liabilities. Net worth must be greater than zero Financial Objectives Continued Now that we have defined these terms, how do we know if a business is profitable, solvent, and liquid? The answer is that the firm must develop information that provides profitability measures, liquidity measures and solvency measures. This brings us to the development of financial statements. The financial statements that we are concerned with are: Balance sheet---Liquidity and Solvency Information Income statement--Profitability information Balance Sheet Statement of financial conditions of business on specific date Assets (owns) = Liabilities (owes) + Owners’ Equity (owner’s investment) For each asset there is an offsetting claim Assets: something of value firm owns or uses Current assets: either cash now or will turn into cash within accounting period (operating cycle) Fixed assets: something firm owns or uses that will not turn into cash within accounting period
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4 Balance Sheet Detre Corporation December 31, 20__ Liabilites Current Liabilities -Notes Payable Accounts Payable Assets Current Assets -Cash Accounts Receivable -Accounts Payable -$ Due this YR on LT Debt Long Term Liabilities Owners’ Equity -Stock -Retained Earnings Total Assets Total Liabilities & OE -Accounts Receivable -Inventories Fixed Assets -Land -Bldgs & Equipment Investments -Accounts Receivable Examples of Current Assets CASH funds are usually in the form of checking account deposits, cash register money or petty cash.
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This note was uploaded on 11/03/2009 for the course AGEC 1003 taught by Professor Detre during the Fall '09 term at LSU.

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Chapter_13 - Basic Accounting Documents Accounting System...

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